"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Tuesday, June 18, 2019

Tribunal Secretaries as a New Career Opportunity for Young Lawyers in India

Who is a tribunal secretary?

Administrative support to arbitral proceedings, especially in the documents intensive and high stakes arbitrations,  is important. "Administrative" support ranges from interacting with the parties regarding administrative matters to sending letters/ documents, maintaining the documents. Administrative support might sometimes even concern drafting procedural orders, etc. A tribunal secretary performs this role on behalf of the tribunal, thus ensuring that the tribunal's focus is on adjudication rather than on performing these mundane but important tasks.

It is important to note that the parties are deemed to have appointed the tribunal to adjudicate the disputes between them and so the tribunal secretary should not ideally perform any adjudicatory function on behalf of the tribunal. Therefore, there are certain duties that should be consented to, expressly or impliedly, by the parties.

What are the functions of a tribunal secretary?

Following could be regarded as the broad functions of a tribunal secretary:

  • Sending and receiving communications on behalf of the tribunal.
  • Maintaining the arbitration record, including the documents, of the arbitration, in various forms- soft and hard copies
  • Conducting legal research on behalf of the tribunal
  • Drafting the non-substantive (which records adjudication by the tribunal) parts of procedural orders and awards. 
  • Keep a record of the costs and manage pre-deposits made by the tribunal for costs.
  • Organising hearings and also meetings of the tribunal.
  • Take notes of the proceedings and keeping tab of time
  •  Proof reading the draft orders, directions and award(s) for typo and other errors, errors in references in citations, etc.
Who can become a tribunal secretary?

Anybody with sufficient training can become a tribunal secretary. However, lawyers can play an important role in acting as tribunal secretaries considering their knowledge of arbitration and the procedures involved therein. Lawyer-secretaries could also aid the tribunal in drafting and research, wherever permissible. 

What is its scope in India?

There is a small increase in the cost of arbitral proceedings due to appointment of tribunal secretaries but it is value for money as they make life far easier for the parties and the arbitral tribunal and ensure that the arbitration process is carried out with amount of hassles. 

In India where most of the arbitrations are ad hoc, using professional and well-trained tribunal secretaries will help immensely in managing and expediting arbitrations. Legally trained tribunal secretaries can play an important role where the tribunal consists of non-lawyers. Arbitral institutions can also have a panel of tribunal secretaries who can help the tribunal in administrative matters. 

As India strives to become a global force on arbitration, it is important to ensure a steady supply of well-qualified and trained tribunal secretaries in order to meet the increasing demand for tribunal secretaries. Tribunal secretaries would play a major role in bigger arbitrations.

What is the Way Forward? 

It is high time that standards organisations and arbitral institutions begin training programmes in India on tribunal secretaries. Government can publish a discussion paper on tribunal secretaries. But the arbitral institutions such as the MCIA, NPAC, etc. should come up with a proper training course on tribunal secretaries. In the interest of developing the pool of tribunal secretaries in India, they should come up with proper training programmes for tribunal secretaries. 

Young lawyers with practice below 5-7 years are in dire need of learning and earning opportunities. If they are trained well enough, India could have a pool of about 50-100 tribunal secretaries in every District in India, who can be ambassadors of how arbitrations can be professionally conducted in India. Following are a list of things that could be done:
  • Arbitral institutions should begin to train young professionals on tribunal secretaries.
  • Arbitral institutions should maintain a pool of well-qualified and trained professionals who can act as tribunal secretaries
  • Arbitral tribunals and High Court annexed arbitral institutions should begin to use the secretaries.
  • Awareness programmes should be conducted on tribunal secretaries and their role in the arbitration process
As recommended in this post and this paper, amendments need to be introduced to the Arbitration law to recognise and bring in the concept of tribunal secretaries in India.

Monday, June 17, 2019

Call for Papers: NLSIR

Call for Papers: The National Law School of India Review
The National Law School of India Review (NLSIR) is now accepting submissions for its upcoming issue Volume 32(1). The NLSIR is the flagship law review of the National Law School of India University, Bangalore, India. The NLSIR is a bi-annual, student edited, peer-reviewed law journal providing incisive legal scholarship on issues that are at the forefront of contemporary legal discourse. In the past 31 years, the NLSIR has regularly featured articles authored by judges of the Indian Supreme Court, senior counsels practicing at the Indian bar, and several renowned academics from national and foreign universities.
The most recent volume of the NLSIR, Vol. 31, will feature contributions by Professor Anthony Cassimatis (TC Beirne School of Law, Australia), Professor Philippe Cullet (School of Oriental and African Studies, London) and Professor Kalpana Kannabiran (Council for Social Development, Hyderabad), among several others. Moreover, NLSIR has the distinction of being cited twice by the Supreme Court of India, with the latest one in the landmark judgment in Justice K.S. Puttaswamy v. Union of India. NLSIR has also recently been cited in Justice R. S. Bachawats Law of Arbitration and Conciliation, a leading treatise on arbitration law in India.
Submission Categories                                         
Submissions are accepted for the following categories:
  1. Long Articles: Between 5,000 and 10,000 words. Papers in this category are expected to engage with the theme and literature comprehensively, and offer an innovative reassessment of the current understanding of that theme. It is advisable, though not necessary, to choose a theme that is of contemporary importance. Purely theoretical pieces are also welcome.
  2. Essays: Between 3,000 and 5,000 words. Essays are far more concise in scope. These papers usually deal with a very specific issue and argue that the issue must be conceptualized differently. They are more engaging and make a more easily identifiable, concrete argument.
  3. Book Reviews: Between 2,000 to 3,000 words.
  4. Case Notes and Legislative Comments: Between 1,500 and 2,500 words. This is an analysis of any contemporary judicial pronouncement or a new piece of legislation whether in India or elsewhere. The note must identify and examine the line of cases in which the decision in question came about and comment on implications for the evolution of that branch of law. In case of legislative comment, the note must analyze the objective of the legislation and the legal impact the same is expected to have.
All word limits are exclusive of footnotes. The journal is flexible regarding the word count depending on the quality of the submission. Pieces in any of the above categories with relevance to India or Indian law are particularly welcome. This, however, is not a pre-requisite.  
Formatting and Citation Guidelines
The body of the manuscript should be in Times New Roman, font size 12 with 1.5 line spacing. The footnotes should be in Times New Roman, font size 10 with single line spacing.
The manuscript should contain only footnotes (and not end notes) as a method of citation. Citations must conform to OSCOLA (Oxford University Standard for the Citation of Legal Authorities) (4th edn.) style of citation.
Authors are required to adhere to the NLSIR Style Guide which can be found here.
How to submit?
The NLSIR only accepts electronic submissions. Submissions may be emailed to mail.nlsir@gmail.com under the subject heading 32(1) NLSIR - Submission. All submissions must contain the following:
  1. The manuscript in .doc or .docx format. The manuscript should not contain the name of the author or his/her institutional affiliation or any other identification mark.
  2. A separate cover letter in .doc or .docx format containing the name of the author, professional information, the title of the manuscript, and contact information.
  3. An abstract of not more than 150 words.
NLSIR is accepting submissions on a rolling basis.
NLSIR shall shortly release a call for papers for Volume 32(2). This volume is based on the theme of our Annual Symposium.
More Information
For more information on NLSIR, please log on to www.nlsir.com.
Subscribe to the NLSIR                 
You can subscribe to the NLSIR here.

Thursday, June 6, 2019

Call for Submissions : Trade, Law and Development

Trade, Law and Development
Call for Submissions
Issue 11.2 | Winter ’19
The Board of Editors of Trade, Law and Development is pleased to invite original, unpublished manuscripts for publication in the Winter ’19 Issue of the Journal (Vol. 11, No. 2) in the form of Articles, Notes, Comments and Book Reviews.

Manuscripts received by September 30, 2019 pertaining to any area within the purview of international economic law will be received for publication in the Winter ’19 issue.

Founded in 2009, the philosophy of TL&D has been to generate and sustain a constructive and democratic debate on emergent issues in international economic law and to serve as a forum for the discussion and distribution of ideas. Towards these ends, we have published works by noted scholars such as Dr. Prof. Ernst Ulrich Petersmann, Prof. Steve Charnovitz, Prof. Petros Mavroidis, Prof. Mitsuo Matsuhita, Prof. Raj Bhala, Prof. Joel Trachtman, Gabrielle Marceau, Simon Lester, Prof. Bryan Mercurio, and Prof. M. Sornarajah among others. TL&D also has the distinction of being ranked the best journal in India across all fields of law for seven consecutive years by Washington and Lee University, School of Law [The Washington & Lee Rankings are considered to be the most comprehensive in this regard].

Manuscripts may be submitted via e-mail or ExpressO. For further information about the journal please click here. For submission guidelines, please click here.

In case of any queries, please feel free to contact us at: editors[at]tradelawdevelopment[dot]com.


PATRON: P.P. Saxena | ADVISORS: Raj Bhala|Jagdish Bhagwati| B.S. Chimni| Glenn Wiser|DanielB. Magraw, Jr.| Vaughan Lowe| Ricardo Ramirez Hernandez| W. Michael Reisman|M. Sornarajah | FACULTY-IN-CHARGE: Rosmy Joan | BOARD OF EDITORS: Ipsiata Gupta| Radhika Parthasarathy| Gautami Govindrajan| Averal Sibal| Sarthak Singla| Abhinav Srivastav| Alice Kumar | Amogh Pareek | Anirudh Sood | Apoorva Singh| Parnika Mittal | Sahil Verma|Aniketa Jain | Anjali Sasikumar | Neerali Nanda | Shlok Patwa | Suvam Kumar | Swikruti Nayak

Tuesday, May 21, 2019

Scope of Public Policy in Setting Aside Awards: Ssangyong v NHAI

As stated in the previous post, the decision of the Supreme Court in Ssangyong Engineering & Construction Co. Ltd. V. NHAI [Civil Appeal No. 4779/2019 dt. 8 May 2019]  is significant for several reasons and one of the important reasons is because it lays down the contours of setting aside arbitral awards on the grounds of public policy and patent illegality post the 2015 amendments. 

In this post, we look at what the Supreme Court held as regards the scope of the ground of public policy in setting aside the arbitral award.

Provisions of Law

Some salient provisions of the amended Arbitration and Conciliation Act, 1996 ("Act" or "1996 Act") are given below:

Section 28(3): "While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction."

Section 34(2)(b)(ii): "An arbitral award may be set aside by the Court only if—... 
(b) the Court finds that—...
(ii) the arbitral award is in conflict with the public policy of India.
Explanation 1.For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice. 
Explanation 2.For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute."

Section 34(2A): "An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence."

The Contours of Public Policy and Patent Illegality: Ssangyong

The Supreme Court laid down what can be done and what cannot be done in a petition for setting aside an arbitral award on the ground of public policy and patent illegality. These are given below:

  • The amended provisions would apply for petitions filed on or after 23 October 2015 (see last post)
  • "Public policy" under Section 34(2)(b)(ii) and Section 48(2)(b) will have the same meaning. Additionally, purely domestic awards could be set aside on the ground of patent illegality appearing on the face of the record.
  • The ground of interest of India as was recognised in Renusagar v GE  has been deleted and no more exists.
Fundamental Policy of Indian Law
  • "Fundamental policy of Indian law" would not entail a review on merits of the dispute. 
  •  Disregarding orders passed by superior courts of India, violation of foreign exchange laws  and contravention of statute linked to public policy or public interest would amount to contravention of the fundamental policy of Indian law.
  • But fundamental policy of Indian law does not entail a review on the merits of the dispute.
  • Fundamental policy of Indian law does not mean perversity. Wednesbury principles do not apply to the ground of fundamental policy of Indian law and decisions which fall short of reasonableness cannot be questioned on this ground. 
  • While audi alterem partem principle is of great importance, it falls is already covered in Section 34(2)(a)(iii) and therefore does not fall within the scope of fundamental policy of Indian law. 
Justice and Morality
  • The ground of justice and morality as provided in Renusagar v GE has been replaced with the most basic notions of morality or justice. These grounds as explained in p. 26 to 29 of Associate Builders would apply.
  • An award which shocks the conscience of the court is likely to be set aside under this ground. If the claimant claims, say, Rs. X but the tribunal awards Rs. X + Y (i.e., Y is not at all claimed) without reason or justification, the award is liable to be set aside it is is opposed to the most basic notions of justice.
  • Morality would obtain the meaning as is given in Section 23 of the Indian Contract Act, 1872. As such it would include sexual morality, such as an award providing for specific performance of an agreement involving prostitution. 
  • Morality would also cover agreements that, though not illegal, are against the prevailing mores of the day. 
  • However, if an award has to be set aside under this ground, it has to shock the court's conscience. 
In the next post, we shall see what the Supreme Court stated on the scope of Section 34(2A) and its impact on the interpretation of "public policy" in Section 48(2)(b).

Wednesday, May 15, 2019

Whether Section 34 Amendments are Retrospective?: Ssangyong v NHAI

The decision of Ssangyong Engineering & Construction Co. Ltd. V. NHAI [Civil Appeal No. 4779/2019 dt. 8 May 2019] is important in the history of Indian arbitration. It not only clarifies the scope of the ground of public policy for setting aside an arbitral award post the 2015 amendment but also decides the vexed question regarding the applicability of these amendments to petitions for setting aside awards that were passed in arbitrations commenced prior to 23 October 2015. In doing so, it impliedly overrules decisions of several High Courts which applied the amended provisions retrospectively to S 34 petitions that were filed much before 23 October. After BCCI v. Kochi Cricket (P) Ltd. [(2018) 6 SCC 287], most High Courts and District Courts began applying the amended Section 34 to petitions that were filed even prior to 23 October 2015. This decision clarifies that the amendments did not apply to Section 34 petitions filed before that date and is in the right direction.   

There are several aspects to the decision that would be the subject of many posts in this blog. This post, however, looks at the limited aspect of retrospective applicability of the amended Section 34. Before embarking on this exercise, it would do well to recap what the Supreme Court stated in BCCI v. Kochi Cricket (P) Ltd. [(2018) 6 SCC 287].

In Para 39 of the Supreme Court's decision in BCCI v Kochi, it held that "where the Section 34 petition is filed after the commencement of the Amendment Act, and an application for stay having been made under Section 36 therein, will be governed by Section 34 as amended and Section 36 as substituted." In order to make the amended Section 36 apply to even pending Section 34 applications, the Supreme Court used the procedure-substance dichotomy and held that the 2015 amendments applied to procedural provisions retrospectively. The consequence of this reasoning was that Section 36 as amended applied even to pending S. 34 petitions.

In para 54 of the decision, the Supreme Court noted the argument of Sr. Counsel Mr. KV Viswanathan that although the amendments to Section 34(2) regarding public policy were styled as clarificatory, they were substantive in nature and that since these amendments did away with at least two precedents, ONGC v. SAW Pipes (2003) and ONGC v. Western Geco (2015) on setting aside arbitral awards on the ground of public policy the amendments could only be prospective. [Readers may kindly note that para 54 of the decision is cited in Ssangyong as para 75, probably referring to the numbering in the SCC report.]. 

But the court in Kochi Cricket held that it was not expressing any final opinion on the issue: "We do not express any opinion on the aforesaid contention since the amendments made to Section 34 are not directly before us. It is enough to state that Section 26 of the Amendment Act makes it clear that the Amendment Act, as a whole, is prospective in nature. Thereafter, whether certain provisions are clarificatory, declaratory or procedural and, therefore, retrospective, is a separate and independent enquiry, which we are not required to undertake in the facts of the present cases, except to the extent indicated above, namely, the effect of the substituted Section 36 of the Amendment Act."

In Ssangyong, the court had to deal with the issue. The court agreed that the amendments were clarificatory in its language. However, the court viewed that the effect of these provisions was that it substantively changed the law and held: "Therefore, even in cases where, for avoidance of doubt, something is clarified by way of an amendment, such clarification cannot be retrospective if the earlier law has been changed substantively." In support of its conclusion, the Supreme Court cited Sedco Forex International v CIT (2005) 12 SCC 717, which was cited by Sr. Counsel Mr. KV Viswanathan in Kochi Cricket.

The court held that since fundamental changes were made in the ground of public policy, it cannot be retrospective and would apply only to Section 34 applications that were filed on or after 23 October 2015 (para 12).

It must be borne in mind that retrospectivity for the purposes of Section 34 is not the date of signing the arbitration agreement or the date of the dispute but the date when the Section 34 petition was filed. If an agreement (with arbitration clause) is signed on 01.01.2012 and a dispute arose on 01.01.2015 and the award is passed on 01.10.2015, the unamended law would apply if the application is filed on  22.10.2015 but the amended law would apply if the application is filed on 23.10.2015.

Sunday, April 28, 2019

Uberrima Fidae in Life Insurance Contracts: Recent Developments

Recently, the Supreme Court of India had the occasion to consider an important question in a life insurance contract: whether an insurer can repudiate a life insurance policy for suppression of material information?

In Reliance Life Insurance Co. Ltd. and Ors. vs. Rekhaben Nareshbhai Rathod (24.04.2019 - SC) : MANU/SC/0593/2019, the question before the court was whether the life insurer was correct in repudiating the contract in view of the fact that the insured suppressed the following material information: the insured had suppressed the material fact that he had obtained life insurance just two months earlier to obtaining insurance from the appellant.

After taking life insurance from an insurer, the insured within two months taken life insurance from the appellant and while declaring whether the insurer had obtained another insurance policy previously, the insured had declared "NA". Within a year from obtaining insurance from the appellant, the insured expired and his spouse filed a claim, which was rejected. The respondent put forth an interesting and plausible argument: that the insurance agent took the insured's signature on a blank proposal which was in English and that the proposal form was filled-up either by the agent or the insurer. 

The Supreme Court rejected the contention by citing a decision given by the Mysore High Court, where the court held that when the insured signs on a blank proposal form the agent ceases to become the insurer's agent and instead becomes the insured's agent. It is interesting to note that the insurer was previously asked to deposit the decreetal amount in court, of which 50% was withdrawn by the insured's spouse. The court ordered under Article 142 of the Constitution that the insured's spouse could retain that amount.

In support of its decision, the Supreme Court cited both English and Indian precedents. It is of note that English law has undergone a dramatic shift owing to the enactment of the UK Consumer Insurance (Disclosure & Representations) Act, 2012. In this post, we will analyse these changes and draw heavily from this paper.

Till 2012, the law as regards pre-contractual duty of disclosure was virtually similar to the law in India. The legal scenario in UK dramatically changed with the enactment of the UK Consumer Insurance (Disclosure & Representations) Act, 2012 (hereinafter “2012 Act”). The 2012 Act bought a dramatic shift in the manner in which the pre-contractual duty of disclosure of material circumstances in consumer insurance contracts was viewed. The reforms that lead to the 2012 Act began in 2006 when the English and the Scottish Law Commissions decided to review the law on pre-contractual disclosure of material circumstances pursuant to a scoping paper issued in January 2006 on the areas that needed law reform. Based on the responses received to the scoping paper, three issue papers were published on topics associated with the pre-contractual disclosure obligations. The topics covered were misrepresentation and non-disclosure, warranties, and intermediaries and pre-contractual information.
These aspects were discussed in several seminars and meetings and the Law Commissions came up with a Report in June 2007 where the reform proposals were clearly outlined. The 2007 Report went on to call the existing state of affairs of permitting the insurer to avoid a policy for the consumer’s honest and reasonable failure to disclose material circumstances and at the same time empowering the Financial Ombudsman Service to order the insurer to pay the claim as “nonsense”. On the prevailing conditions, the 2007 Report observed:

We think that the law should generally follow accepted practice, in the absence of an agreement to the contrary. Not every term is thought about or negotiated in advance. Currently the law imposes a default regime that undercuts, rather than supports, accepted market practice. In so doing, it risks defeating the reasonable expectations of the insured.”

The 2007 Report identified the following adverse effects of the existing regime on the UK insurance market:
  • Insurance fails to meet the reasonable expectations of the customer since rejection of insurance claim creates a deep sense of grievance.
  • It is in the best interests of consumers to obtain insurance. The existing state of affairs, however, creates a negative incentive deterring the consumer from obtaining insurance.
  • The relevant law in the European and commonwealth countries are more insurance-friendly. This might drive away consumers from the UK market to more favourable insurance markets.
In view of the problems and the adverse effects of such problems on the UK insurance market, the 2007 Report sought to reform the law by taking into consideration the salutary objectives of disclosure of material circumstances of preventing adverse selection and thereby protecting the insurance market from non-viability. At the same time, the 2007 Report clarified that the consumers should be obligated to take reasonable care to answer the questions asked by the insurer clearly and accurately and in case of failure to do so, the insurers should be suitably compensated. The Report also noted that the proposed reforms would increase the premiums slightly considering that more claims would have to be paid by the insurer. Even so, the Report claimed that the consumers would not mind a small increase in premium for the additional cover these reforms would provide. On the quantum of increase, the 2007 Report claimed that since the reforms were either requirements of the Financial Services Authority or practice of the insurance ombudsman, the increase would be negligible. The reforms, the 2007 Report, claimed would ensure that law would ensure consumers’ reasonable expectations and good practice.

Based on further consultation and discussion, the UK and the Scottish Law Commissions published a joint Report in 2009 and tabled it in the UK and Scottish Parliaments in December 2009. Based on the recommendations in the 2009 Report, a Bill titled “UK Consumer Insurance (Disclosure & Representations) Bill” was initiated which eventually became UK Consumer Insurance (Disclosure & Representations) Act, 2012 after receiving royal assent in March 2012. The said statute came into force on 6th April 2013.

Salient features of the UK Consumer Insurance (Disclosure & Representations) Act, 2012 are summarised below:
  • The Act wholly replaces the doctrine of utmost good faith as applicable to the insurer and the non-business insured. For the purposes of the 2012 Act, a non-business insured is an individual who enters into the insurance contract wholly or mainly for purposes unrelated to such individual’s trade, business or profession. 
  • The replaced duty is “the duty to take reasonable care not to make a misrepresentation to the insurer.” 
  • The purport of the said duty is that the insured must take reasonable care to answer insurer’s questions fully and accurately and in case the insured volunteers information, reasonable care must be taken to ensure that the information is not misleading. 
  • The question as to whether reasonable care has been taken or not has to be determined after taking into account all the relevant circumstances, including the type of insurance contract, relevant explanatory material or publicity produced/ authorized by the insurer, clarity and specificity of the insurer’s questions, whether the agent was acting for the consumer. 
  • Another relevant circumstance in case of a failure to respond to the insurer’s questions with respect to renewal/ variation of an insurance contract is the communication by the insurer to the insured of the importance of answering the said questions or the possible consequences of failing to answer those questions. 
  • Misrepresentation made dishonestly amounts to lack of reasonable care. 
  • However, if the insurer was, or ought to have been aware of particular characteristics or circumstances of the actual consumer, such characteristics have to be taken into account. 
  • A qualifying misrepresentation is a misrepresentation by the insured before the insurance contract is entered into or varied for which insurer has a remedy against the consumer. 
  • The insurer has a remedy only when the following are established: 
  • where the consumer breached the duty to take reasonable care as stated above, and 
  • the insurer shows that without the misrepresentation, the insurer would not have entered into or varied the contract or would have done so on different terms. 
  • Unless contrary is shown, there is a presumption that: 
  • the consumer is a reasonable consumer, and 
  • the consumer knew the matter about which insurer asked a clear and specific question which was relevant to the insurer. 
  • A qualifying representation is deliberate or reckless if the insured knew that such misrepresentation was misleading or did not care whether or not it was untrue or misleading. 
  • A qualifying representation is careless if it is not deliberate or reckless. 
  • The onus lies on the insurer to show that the qualifying representation was deliberate or reckless. 
  • Remedies:

Qualifying Misrepresentation
Deliberate or reckless
Avoid the contract and refuse all claims. Need not return premiums paid unless it is unfair to the consumer.
Careless- insurer would not have entered into contract but for it
Avoid the contract and refuse all claims but return the premiums paid
Careless- insurer would have entered into contract on different terms
Contract is to be treated as having been entered into on different terms
Careless- insurer would have charged higher premium
Amount paid on a claim may be reduced proportionately (X%):

X% = (premium actually charged ÷ higher premium) * 100

  • In case of careless misrepresentations, the insurer may give a notice of the careless misrepresentations and the remedy available or terminate the contract by giving reasonable notice to the consumer. 
  • However, the insurer does not have the right to terminate a life insurance contract for careless misrepresentation. 
  • Premiums paid for careless misrepresentation for the balance contract period after termination of contract by either party pursuant to the reasonable notice specified above should be returned. 
  • Termination, however, does not affect the treatment of a claim that arose during the contract period prior to termination. 
  • These provisions cannot be contracted out to the disadvantage of the consumer. 
In short, English law replaces uberrima fidae in life insurance law, with a more nuanced set of standards based on facts. Although the present decision cites English cases, these developments in English law and their impact have not been taken into account. The previous round on reforms in India in the form of the 190th Law Commission Report preceded these reforms in English law. Nevertheless, it would do good to have a re-look at our law in light of the developments world over. These questions should once again be discussed by the Law Commission. 

Apart from the above, in view of the requirement of insurance agents to achieve targets and the realities that the insured are not really explained about the nuances of the proposal form, it would do good to making it mandatory to video-record all policy subscriptions. The agent read over the questions in the language that is understood by the insured and also record the answers. Leveraging technology can be solution to such problems.

Thursday, April 18, 2019

De Jure ineligibility of Arbitral Tribunal after 2015: SCI Clarifies

Post the TRF decision [TRF Ltd. v. EnergoEngineering Projects Ltd., (2017) 8 SCC 377] of the Supreme Court, there was a doubt as regards the appropriate forum to approach in case of appointment of an arbitrator whose appointment is void at the inception owing to the reason that the proposed arbitrator fell within one of the items in Schedule VII. The Supreme Court has now clarified in the decision of Bharat Broadband Network Ltd. v. United Telecoms Ltd. that since the appointment of such an arbitrator falls foul of Section 12(5), the appropriate forum to challenge such an appointment is not before the arbitrator but before the court under Section 14(2). 

The court was of the view that when such a person is appointed, his mandate terminates automatically (Para 17). The Supreme Court further clarified that two questions are to be decided in a petition under Section 14(2) in the above facts: (1) whether the appointee comes within the purview of Schedule VII; (2) if so, whether there has been a waiver?

The court also distinguished between waiver in terms of Section 4 and Section 12(5). The court stated that the threshold for waiver in Section 12(5) is much higher than Section 4 in that 12(5) required that the waiver should be through an express written agreement. The court also held that the 12(5) threshold is much higher than the "writing" requirement for an arbitration agreement as provided in Section 7 of the Act.

Do read the interesting decision. It compensates for the lack of depth in the TRF decision, where the Supreme Court missed the bus by not citing or analysing the international arbitration jurisprudence regarding the role of appointing authorities and non-conflation of the role of appointing authority and arbitral tribunal.  

Monday, March 25, 2019

Further Comments on Icomm v PSWSSB (March 2019: SCI)

In the previous post, we critiqued the decision of the Supreme Court in Icomm v PSWSSB (11 March 2019). Some more comments/ clarifications form the content of this post.

Whether High Courts Should Interfere in Government Contracts?

Generally, High Courts should not interfere in Government contracts unless the party will be unable to seek relief through the contracted dispute resolution mechanisms or the civil courts. Availability of alternative efficacious remedy is a well-entrenched defence in writs. Instead, courts have this nebulous test of arbitrariness and interfere at their discretion, especially when arbitrariness is such a nebulous term. 

In the instant case, the court could very well have interfered considering the contracted dispute resolution clause was onerous on the claimant. But for reasons stated in the previous post, such an argument is not well-founded. 

Another distinction in Government contracts must be kept in mind. There is a difference between commercial procurement by the state/ state entities as an end-in-itself and as a means to an end. For instance, procurement of 10 crores worth stationery for consumption by central government (end-in-itself) is totally different from procurement of goods for manufacture by a central PSU (means to an end). Although both are commercial and not sovereign acts of the state, there is a marked difference: The latter is usually a listed company competing in the market with other private players and should have a level playing field to enable it to compete. They are accountable to their shareholders ultimately. By ordering stay on their projects, the courts are only disabling them from being efficient by competing in open market. Therefore, the court interference in the latter cases should be only when absolutely necessary. There are agencies such as vigilance, government audit, etc. to take care of these things and court interfere in corrupt conduct is called for only if these institutions fail. 

Whether the fact that the Appellant in the instant case accepted the Tender Conditions meant that he had accepted it and cannot later complain?

This argument is well-founded. The Appellant, along with all other bidders, seem to have accepted the tender conditions, including the arbitration clause. It somehow does not comport with justice and prudence to challenge it much after accepting it, taking the benefit of being awarded the contract, and then later challenging it at its convenience.

Further, even in those judicial review cases, courts would not generally go into the question of invalidity of tender clauses but only of processes. Even when courts question tender clauses, such clauses should have laid down arbitrary processes. There are umpteen judgments which state that courts would not decide how tender conditions should be framed [See, for instance, Directorate Of Education v. Educomp Datamatics Ltd. (2004) 4 SCC 19]. The same principle would apply here. 

Now the question is whether the clause was a bad process. For reasons in the previous post, we disagree. Day in and day out, we see exaggerated claims being made in litigation/ arbitration. Many of the times, adjudicators don't really examine the evidence threadbare to see if the damages claimed is actually suffered.

Whether the Proportionality Test is Applicable only to Purely Public Law Aspects?

The proportionality test has been used in the realm of public law to review public law acts. While contracting by government is not a purely private act, contract law applies to it. 

The proportionality test looks at the following questions:

(a) the action must be sanctioned by law;
(b) the proposed action must be necessary in a democratic society for a legitimate aim; 
(c) the extent of such interference must be proportionate to the need for such interference;
(d) There must be procedural guarantees against abuse of such interference

How can one imagine to incorporate these sub-tests in the current context? Look at the second sub-test: "the proposed action must be necessary in a democratic society for a legitimate aim"? I am sure an expert in public law while provide us with insights on all the facets of the proportionality test as is applied in India. But even the most commonly found formulation of the test is wholly inappropriate for application in the present context.

Whether the Decision is Against the Party Autonomy Doctrine?

The doctrine of party autonomy cannot be simply raised as an argument because the dynamics of the party autonomy doctrine's application in government contracts has not yet been analysed theoretically in the Indian context. Many government contracts operate on a take it or leave it basis or government parties agree only to minor tweaks in the arbitration clause in the international context. A theoretical base has to be built in the Indian context before addressing the question. At the most, it could be argued that this clause found place in the tender document and was accepted by all the other bidders. It would now be unjust on the other bidders that Icomm should be awarded the contract and should then be allowed to say that certain clauses should not be applied to it.

[Post Script: Thanks to Ms. Juhi Gupta for raising somewhat similar questions on the decision and our previous post.]

Thursday, March 21, 2019

Conflating Public Law & Private Law: Has the SC Blundered?

Punjab State Water Supply & Sewerage Board had a lengthy arbitration clause containing a unique provision:

viii. It shall be an essential term of this contract that in order to avoid frivolous claims the party invoking arbitration shall specify the dispute based on facts and calculations stating the amount claimed under each claim and shall furnish a “deposit-at-call” for ten percent of the amount claimed, on a schedule bank in the name of the Arbitrator by his official designation who shall keep the amount in deposit till the announcement of the award. In the event of an award in favour of the claimant, the deposit shall be refunded to him in proportion to the amount awarded w.r.t the amount claimed and the balance, if any, shall be forfeited and paid to the other party.”

The first sentence of clause viii stated the objective of the clause: to avoid frivolous claims. It further provided that the party invoking arbitration (Claimant) would have to specify the dispute based on facts and calculations and has to state the amount claimed under each claim. So far so good. It then provided that the Claimant should furnish a "deposit-at-call" to the tune of 10% of the claim amount in the name of the arbitrator in a bank till the announcement of the award.

The clause stated that if the award was in favour of the Claimant, the deposit was to be refunded to him in proportion to the amount awarded with respect to what is claimed and the balance would be forfeited and paid to the Respondent. To explain this with an illustration, if the amount claimed is Rs. 10 lakhs, the deposit-in-call would be 10% thereof, that is, Rs. 1 lakh. If the Claimant is awarded only 6 lakhs out of Rs. 10 lakhs claimed, the Claimant would be entitled to be refunded Rs. 60,000/- of the deposit and the remaining Rs. 40,000/- in the deposit would be forfeited by the Respondent. If the Claimant was successful in the whole claim, she would be refunded the entire amount but if the claim was dismissed, Rs. 1 lakh deposited would be forfeited in full by the Respondent.

Clause xv of the agreement provided: "xv. No question relating to this contract shall be brought before any civil court without first invoking and completing the arbitration proceedings, if the issue is covered by the scope of arbitration under this contract. The pending arbitration proceedings shall not disentitle the Engineer-in-charge to terminate the contract and to make alternate arrangements for completion of the works."

From a purely objective stand point and seeing it without being prejudiced by the fact that clause viii was struck down as being violative of Article 14 of the Constitution of India, the drafter of this innovative clause has to be appreciated for the application of mind. The clause has three distinct advantages:
  1. It provides negative incentives on the Claimant. It guards against exaggerated claims by the Claimant and provides a negative incentive for the Claimant not to do so.
  2. If the Claimant is prevented from making exaggerated claims, the fee of the arbitrators is also kept at a reasonable level since it is ad valorem.
  3. As we have argued in the past (see, here and here), the costs mechanism in India is not up to the mark and the arbitrators and the tribunals rarely award costs. This clause requires the tribunal to do what it should have otherwise done: award costs in favour of the Respondent and against the Claimant in respect of exaggerated claims. This is fairly standard in international arbitration practice.
The court held that the clause was violative of Article 14 of the Constitution of India, which is really erroneous and unfortunate. The unreasonable court interference in the commercial (as opposed to sovereign) acts of the state is uncalled for and the decision requires to be revisited by a larger Bench, The unjustified application of the public law principles in such disputes stifles innovation and protection of interests of the government sector. As such government sectors, especially, public sector undertakings, face a lot of heat with regard to competing with private sector and at the same time fulfilling the socio-economic obligations . The step-motherly treatment of these sectors from the courts, the unjustified contempt and prejudice shown by the courts when it comes to the public sector needs to be relooked at by courts.

Clearly, the court's invocation of Article 14 means that the private sector which is immune from claims regarding violation of fundamental (and not contractual or statutory) rights could insist on such a clause without qualms. With these preliminary remarks, let us how the court held the clause to be invalid:


Punjab State Water Supply & Sewerage Board, Bhatinda (PSWSSB) invited tenders for a project and Icomm Tele Ltd. (Icomm) was the successful bidder. A contract was entered into between the parties and it contained a arbitration clause, which included the above quoted provision. Disputes arose and Icomm wrote to PSWSSB for appointment of arbitrator and for waiver of the 10% deposit fee, which was not responded to.

Icomm challenged the clause through a writ petition contending that clause viii was unreasonable and arbitrary but the petition was dismissed. So Icomm approached the Supreme Court.


Icomm challenged above clause on three grounds:
  • The contract was hit by Section 23 of the Indian Contract Act, 1872 in that it was a contract of adhesion and was against the public policy of India.
  • A 10% deposit is a clog on the arbitration process.
  • The clause is arbitrary and highhanded.
PSWSSB on the other hand argued that the clause applied to both parties equally and that the argument as regards public policy is not applicable in case of commercial contracts.


On the first argument that the contract was against public policy and hit by virtue of the Supreme Court's decision in Central Inland Water Transport Corpn. v. Brojo Nath Ganguly, (1986) 3 SCC 156, the court held that this being a commercial contract, Icomm cannot make a valid argument that the clause was hit by Section 23 of the Indian Contract Act, 1872.

But the court accepted the argument that the clause in issue was arbitrary. Following were the reasons that led the court to so decide:
  • Frivolous claims could be dismissed with exemplary costs, as was held in Dnyandeo Sabaji Naik v. Pradnya Prakash Khadekar, (2017) 5 SCC 496
  • In General Motors (I) (P) Ltd. v. Ashok Ramnik Lal Tolat, (2015) 1 SCC 429, the concept of punitive damages was discussed and the important principle that unless the litigation was held to be frivolous, exemplary costs would not follow.
  • In this case, the deposit-at-call clause called for 10% of the claim amount, which could amount to a large sum of money does not have any direct nexus to the filing of frivolous claims, as it applies to all claims, even non-frivolous, at the threshold.
  • The deposit-at-call clause is totally disproportionate to the object sought to be achieved, that is, prevent frivolous claims.
  • The clause is arbitrary in that it is unfair and unjust and no reasonable man would agree to it. There are situations where a claim may be dismissed not for reasons of frivolity as is the case with majority and minority awards. Take a case of illegal termination of contract. If the court declares the termination to be illegal and awards only one-tenth of the claim, the respondents gets to hold 10% of the that amount, which means that the party which lost the arbitration will be entitled to forfeit nine-tenths of the amount deposited. This is arbitrary, disproportionate, and would lead to unjust results.
  • Arbitration being an important part of the dispute resolution process, such a clause would be a clog on arbitration and cannot be encouraged. The primary objective of arbitration is speedy and efficient resolution of disputes but such a clause militates against these purposes. This clause would render the arbitration process expensive.
Further Comments

Apart from the critique in the first part of this post, a few other aspects are noteworthy.

Unequal Bargaining Power: The court rightly rejected the argument that the clause is invalid in view of the unequal bargaining power between the parties. The concept of unequal bargaining power is generally not applied in commercial contracts and the law is fairly settled in this regard: see, for instance, Central Inland Water Transport Corporation Ltd. and Anr. v. Brojo Nath Ganguly and Anr. MANU/SC/0439/1986, Para 89; SK Jain v Haryana MANU/SC/0323/2009; General Assurance Society Ltd. v. Chandmull Jain and Anr. MANU/SC/0180/1966; Patel Engineering v BT Patil 2016(3) Arb LR 162 (Bom).

Are Frivolous Claims Dismissed with Exemplary Costs? The ground relied on by the court that there was another way to deal with frivolous claims: "It is well settled that a frivolous claim can be dismissed with exemplary costs." This argument is not at all convincing for two reasons: (1) It is well known that rarely do Indian courts and tribunals award costs, even in proceedings of commercial nature such as arbitration proceedings (see, here, here, and here). Therefore, that courts and tribunals can grant exemplary costs is really a mirage. They don't do that, especially when the Government and the PSUs are at the receiving end.

In this blogger's experience in PSUs for ten years, courts rarely penalise petitioners for frivolous claims. Government subsidising frivolous litigation is a drain on taxpayer's money. Subsidisation of frivolous claims in commercial contracts is a massive drain on government's and taxpayer's wealth, especially in the context of PSUs. In the annals of Indian legal history, one can rarely find courts ordering costs on frivolous and unsuccessful challenges to awarding of contracts on a party instead of the petitioners. In sum, the argument relied on by the court is mere rhetoric and not a well-founded argument.

On the one hand, law is purported to be certain that assessment of damages is possible prior to a decision from a court and on the other hand, the court puts forth a hypothetical test wherein the claimant actually makes an exaggerated claim but the court gives the claimant the benefit. The hypothetical argument doesn’t comport with justice or any legitimate moral, social or economic principle.

Note that the clause does not state that if the claimant claims Rs. 10 lakhs and is awarded Rs. 10 lakhs, the respondent could forfeit the whole or part of it. It only states that if the claimant is awarded Rs. 1 lakh as against a claim of Rs. 10 lakhs (exaggerated), the respondent would be entitled to foreit Rs. 90,000 from Rs. one lakh deposited.

Stifling of Innovation: Stifles innovation in government sector, especially in the commercial contracts entered into by the Government and the Public Sector Undertakings. Having held that the contract is a commercial contract, invocation of Article 14 is shocking to the least, and is against the trends in jurisprudence of limited interference.

Application of Proportionality Test to Contractual Clauses: Private law proceeds on the principle that that the contracting parties are best judges of their contractual arrangement and the state cannot and should not interfere in contracts, unless absolutely justified. In this case, the bidder assessed the risk associated with all clauses in the tender and submitted its bid agreeing to all the clauses therein, including the arbitration clause when a contract is entered into. Therefore, interference by the Supreme Court by applying the proportionality test on a contract clause was wrong. The Supreme Court cannot be a judge of what is essentially an economic decision: using the deposit-at-call clause as a disincentive to frivolous claims. In fact, the clause fills the gap or defect in the application of law by courts and tribunals in ordering costs in case of exaggerated or frivolous claims. Can the proportionality test which is used in constitutional contexts be applied to test the validity of a contract clause is the larger question that requires a detailed consideration. The decision has created a new Frankenstein monster akin to public policy by applying the proportionality test to examine the validity of contractual clauses.

Is the Impugned Clause a Clog on Arbitration?: The finding that the clause is a clog on arbitration does not appeal to reason. It is only a clog on an exaggerated claim in arbitration and cannot be considered a clog on arbitration. Had the clause provided, for instance, that even if the Claimant is awarded the claim, the Claimant and not the PSWSSB will bear the costs of arbitration, will probably be a clog on arbitration. The court has not really justified how it will be so.

In all, the decision is least convincing and lacks an objective and incisive analysis of the underlying justifications that the issue really called for.

[Food for Thought: If the impugned clause is construed as an agreement to pay costs, wouldn’t it be hit by Section 31A(5)of the Arbitration and Conciliation Act, 1996?]

The decision can be accessed from here.